BRUSSELS 19 December 2017. The launch of the world’s largest carbon market sends an important political signal of China’s commitment to address climate change. Putting a price on pollution can incentivise the phase-out of fossil fuels, but the existing carbon markets have so far not delivered a high enough price to drive the transition to a zero-carbon economy.

Today, China announced the launch of its long-awaited carbon market. The scheme will initially include only the power sector, covering around 3.3 Gt emissions which represents around a third of China’s national emissions. It will instantly overtake Europe’s carbon market as the world’s biggest cap and trade system.

However, a number of uncertainties remain around the scheme, including concerns over data quality, and measuring, verification and reporting systems in many of the Chinese provinces.

Femke de Jong, policy director at Carbon Market Watch commented:

“The launch of the Chinese carbon market shows that there is increased commitment around the world to price pollution and direct investments into clean technologies. Transparency and public participation will be key to making the Chinese scheme a success in the coming years.”

The majority of carbon prices around the world are too low to reduce emissions fast enough to limit global warming to safe levels. This includes the EU Emissions Trading System ( EU ETS) that suffers from a massive oversupply and over-generous hand-out of free permits. China and others can learn from these experiences when developing their carbon markets: safeguards such as rising carbon floor prices are essential from the beginning.

Implications for Europe

The start of China’s emissions trading system signals a worldwide move to carbon pricing that will have implications also for the EU ETS. So far, industries have successfully lobbied for free pollution permits by threatening to move production to other parts of the world with laxer environmental laws, including China, but this argument is quickly losing ground.

“With more and more countries across the world adopting carbon pricing initiatives, there is no longer a justification for the EU to give out free permits to the most polluting industries. Auctioning of pollution permits should become the norm as we move towards global carbon pricing.”

The Chinese emissions trading scheme starts off with a preparatory phase covering only the power sector, with other sectors expected to be added by 2020.